Buy Leel Electricals: SP Tulsian

If you now see the situation going forward from here, company is still catering as a B2B AC suppliers to majority of the AC makers because they are the leaders in HVAC segment i.e. heating, ventilation, air conditioning and refrigeration segments. Their horizon apart from B2B, this product distribution, they are catering to railways and from railways it is moving to the metros also. The kind of growth which we have been seeing and they are chosen as a preferred supplier for HVAC segments for the metros also. They are chosen by the international supplier also for all the rolling stocks which needs HVAC i.e. heating, ventilation, air conditioning and refrigeration and that is in fact their core business.

Chairman has clearly stated in his speech, which has been given to the stock exchanges also, that the idea or the reason for exiting from consumer durable business that they wanted good amount of capital to sustain the business at the present level, not the growth. B2B or their core business is seen to have very high margin. Rs 1,550 crore, the utilisation, the company have not spelt out yet, but that they have made in this speech that partly it will be used to deleverage the balance sheet which is on account of partly term loan and partly working capital and then to augment the business.

If you see the situation going forward, from 2018 all the ACs be required -- as of now only ACs having five star and inverter needs to get rated but from 2018 all the ACs will be required to get rated whether they are on the inverter or not. So whether it is a fixed or variable compressors, all will get rated. In all these segments the company has the mastery. I am not going into much of the financials because that has already been spelt out when I recommended the stock earlier, though the company has reported an EPS of closer to about Rs 8.30 in Q1, I am expecting that for whole of FY18, they should be able to post an EPS of about maybe Rs 24-25 that gives a valuation of P/E multiple of 6-7. Company will be having a cash or maybe debt reduction of closer to about Rs 90-100 per share.

So if you take a call and the recently listed Dixon Technologies which is an identical business, in fact I would say that they have a high margin business, Dixon is a low margin business which is ruling at a P/E multiple of 35-38. So taking that into account, this stock ruling at a P/E multiple of 7, net of cash or maybe at a P/E multiple of 9 looks extremely positive. Share is now ruling at Rs 273 and can move to a level of Rs 325 in six months. So effectively it will be giving 100 percent gain from our earlier recommendation which we have made six weeks back, but still looks a good buy on this festive occasion.

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